Learn about how the "back end" is used in film financing and production agreements.
When purchasing the rights or option to a piece of source material, whether book or another format, you are going to have to arrange a number of different payments. Often you set a purchase price, an annual option price, and sometimes even more for absolute rights. One thing that is often offered is the "back end."
The back end is a way for the author of the source material, or anybody else participating who may be eligible, to get some "profit participation." This means that they are then paid some of the profit the film makes after it breaks even. This can be anywhere from a couple to more than ten percent of the total gross after the film covers production and promotional costs, which is called the net gross. This total is just checked after the majority of the box office money has come in and then all of the other costs are subtracted from it. Now we take the specified percentage points, sometimes called net points, and take that out of the remaining monetary sum.
Many people often opt to take a larger share of the back end in replacement of a larger salary during negotiations. This is usually the case when an actor, director, or source material provider is certain that the film in question will make a lot of money initially. In this case they make take an amount that is far below their standard for a large number of net points. This is risky, which is why it is only usually done in cases of comic book movies, trusted franchises, or other ensured successes. This can be counteracted by the studio who may offer a much larger salary to reduce the number of net points the individual will receive.
Gross Profit Points
Some people even attempt to get "gross profit points," which is a percentage off the total gross and not just the net amount the film makes after it breaks even. This is an even better deal because, naturally, the sum will always be more. This is the kind of thing that people participating will always try to get, but anybody investing in it should and will fight vigorously. If the property is valuable the author of the source material should fight to get gross profit points, hopefully over five percent.
Along with these are adjusted gross profit agreements where the studio or producer is able to put a limit on what they can receive. This can all be difficult to interpret, which is why most people in the industry have agents, managers, and lawyers to help them make executive business decisions. Know what you and your property are worth ahead of time and fight to get the largest back end you actually can, but don't overshoot.